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Sequester delayed for two months; pay freeze extension still possible

Federal agencies received a two-month reprieve from the across-the-board spending cuts that were scheduled to start Jan. 2 under the Budget Control Act.

The House, Senate and White House agreed to delay the effects of sequestration until March under the American Taxpayer Relief Act of 2012. The Senate passed the bill Dec. 31 by a vote of 89-8, and the House followed Jan. 1 by a vote of 256-171.

The White House said in a fact sheet that "the agreement saves $24 billion, half in revenue and half from spending cuts which are divided equally between defense and nondefense, in order to delay the sequester for two months. This will give Congress time to work on a balanced plan to end the sequester permanently through a combination of additional revenue and spending cuts in a balanced manner."

Sequestration would have required agencies to cut $109 billion — split evenly between Defense civilian agency budgets — in 2013. It would have slashed Defense discretionary spending by 9.4 percent and civilian agency spending by 8.2 percent. But now, Congress has two months more to figure out how to avoid the cuts permanently.

But the news wasn't all good for agencies. The House also passed a bill Tuesday to extend the pay freeze for federal workers through all of fiscal 2013. The Senate still must pass the bill, which was built off a provision in the Upper Chamber's bill that would freeze members of Congress pay for all of 2013. Rep. Michael Fitzpatrick (R-Pa.) introduced the new bill, H.R. 6726.

Rep. Michael Fitzpatrick (R-Pa.)

"Last week, with the prospect of the fiscal cliff looming large and Congress working through the last minute to avert financial and economic disaster, President Obama felt it was appropriate to grant pay raises across the federal government," Fitzpatrick said in a release. "I could not allow this to go unchallenged. At a time when American families are tightening their belts and businesses are reducing salaries to make ends meet, I believe that the federal government must lead by example."

Fitzpatrick was referring to the President's executive order ending the pay freeze on March 27, when the current continuing resolution expires.

The pay freeze was not guaranteed to end as Congress could extend the CR through all of 2013 or not include it in any of the appropriations bills they pass.

As expected, employee unions and federal worker-friendly members of Congress attacked Fitzpatrick's bill. David Cox, president of the American Federation of Government Employees, said in a statement that Fitzpatrick's bill was a "cheap political ploy."

"Not only does it inflict tremendous damage on the families of these modestly paid workers, more than half of whom are veterans, but it also hits the communities where these employees live, since they will continue to be unable to afford any kind of economic activity beyond paying for the bare necessities of living," Cox said.

Rep. Steny Hoyer (D-Md.) said he hopes Republicans will reconsider the attacks on federal employees.

"I strongly oppose such a move, which, fortunately, has no chance of passing the Senate, because middle-class federal employees have already contributed nearly $90 billion toward deficit reduction through reduced pay and pension benefits at a time when other groups have not been asked to contribute," Hoyer said. "On top of this current pay freeze, starting today, newly hired employees, compared to federal employees hired before Jan. 1, will see their pay decreased by 2.3 percent as a result of a change that was enacted to the federal pension system last winter. This change will yield an additional $15 billion in deficit reduction over 10 years."

The American Taxpayer Relief Act of 2012 does stop a $900 pay increase for lawmakers, but makes no mention of federal employees.

"I believe that there's further unnecessary spending in government that we can eliminate," Obama said after the House's vote. "But we can't simply cut our way to prosperity. Cutting spending has to go hand-in-hand with further reforms to our tax code so that the wealthiest corporations and individuals can't take advantage of loopholes and deductions that aren't available to most Americans. And we can't keep cutting things like basic research and new technology and still expect to succeed in a 21st century economy. So we're going to have to continue to move forward in deficit reduction, but we have to do it in a balanced way, making sure that we are growing even as we get a handle on our spending."

Speaker of the House John Boehner (R-Ohio) said in a statement after the vote that the government must turn its attention to reducing its spending.

"Without meaningful reform of entitlements, real spending controls and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble," he said. "Republicans stand for a stronger, more prosperous America, rich in opportunity and free of the debt that threatens our children's future. On this New Year's Day, we renew our commitment to that vision, humbled by the opportunity to serve."